Hart proved the difficulty of deriving general comparative statics in portfolio weights. Instead, we derive new comparative statics for the distribution of payoffs: A is less risk averse than B iff A's payoff is always distributed as B's payoff plus a non-negative random variable plus...

Tobin's q is often used to proxy for firm performance when studying the relation between corporate governance and firm performance. However, our theoretical and empirical analysis demonstrate that Tobin's q does not measure firm performance since underinvestment increases rather than decreases...

Traditional mean-variance calculations tell us that the return to a well-diversified portfolio of stocks with an average beta of one will be close to the benchmark. This may suggest that an active manager seeking to beat the market cannot succeed with a large diversified portfolio, and that any...

Controversy about the fairness of early transitions from traditional defined-benefit plans to cash-balance plans may have overshadowed the subtleties of funding a cash-balance pension liability. Because crediting rates of cash-balance liabilities float with market rates, the same techniques used...

Analysis of absence of arbitrage normally ignores payoffs in states to which the agent assigns zero probability. We extend the Fundamental Theorem of Asset Pricing to the case of quot;no empty promisesquot; in which the agent cannot promise arbitrarily large payments in some states. There is a...

Analysis of absence of arbitrage normally ignores payoffs in a set of states to which the agent assigns zero probability. However, bankruptcy and limited resources make it impossible for a trader to make large promises in a state the trader believes to be impossible if the market considers that...

In frictionless markets having no arbitrage, the asymptotic zero-coupon rate never falls. The same is true of the long forward rate. The long par-coupon rate can rise and fall due to forward rate movements at short maturities. This paper relates the three types of interest rate and formalizes...

Portfolio turnpike theorems show that if preferences at large wealth levels are similar to power utility, then the investment strategy converges to the power utility strategy as the horizon increases. We state and prove two simple and general portfolio turnpike theorems. Unlike existing...

We extend Cass and Stiglitz's analysis of preference-based mutual fund separation. We provide a complete characterization of the general K-fund separation. We show that some instances of separation with many funds can be constructed by adding inverse marginal utility functions having separation...